It’s well known fact of airline revenue optimization that business and first classes hold the key to profitability. As with everything since the result of 2016’s US election, travel in the Trump Era change predictably and precipitously. To date, the first family has not plated Air Force One gold (if only for impact on fuel economy, amid rising oil prices). Yet, the Trump Era economic climate and geopolitical events are creating a perfect storm of opportunity for luxury class travel brands across the cruise, train, and above all, for airline revenue optimization of first- and business-class travel classes.
Of Fuel and Flight
Fuel and flight are strange bedfellows, particularly at the “upper class” end of the market, to borrow the term preferred by Virgin’s Airlines. In the recession, business class travel took a nose dive as fuel surged and firms were forced to tighten corporate spending and minimize travel expenses, particularly in a climate of high oil prices.
As shown in a historical charting of crude prices, fuel prices hit an all-time peak in the summer of 2008. At the time, airline’s added “fuel surcharges” – many marketed as temporary – to fares, which helped spur the revival of airline stocks when fuel prices decreased immediately thereafter. Though the recession initially pressured corporations to limit employees’ travel spending, airlines were ensured quicker recovery than other commodity-dependent industries.
According to the International Air Transportation Association (IATA), 90% of travelers fly economy, yet the remaining 10% – the business class travel set – account 30% of airlines’ profits. These few, elite passengers pay 5-6 times more for their tickets, and depending on fare schemes, might actually subsidize the fares paid by bargain hunters in economy classes. In the most recent recession, surging fuel costs saw business class travel purchases to decline 3x faster than economy class.
Between the recession and cautious recovery, some carriers like Aer Lingus, a low-cost Irish airline, opted in 2010 to remove business class. Other airlines created, or repackaged “Economy Plus,” as with United, Delta’s “Comfort+“, or “Economy Flex” on Scandinavian Airlines (SAS), at rates 80-90% cheaper than traditional business class fares but with perks like better legroom and alcoholic “refreshments”. These moves sought to gradually ratchet-up prices – and profits – for customers willing to pay a premium.
The revival of Business Class Travel
The current climate, however, suggests a revival of business class travel, with buzz of all business-class flights and terminals trending, and even supersonic concepts reminiscent of the Concorde, though most are rightly dubious that the concept could weather any future economic turbulence. (The year 2008 wasn’t unlike 1973, when orders for the Concorde – truly the apex of 20th century consumer aviation – were cancelled.) Undoubtedly this resurgence of business class travel has been helped by downward trends in fuel prices.
Looking forward, at the dawn of a Trump presidency in the US which bears implications the world over, we predict continued short-term profitability for luxury travel, and particularly business class travel by air which holds both potential for profitability in fare sales, as well as frequency in fare sales travel innate to this audience. The trick is to cultivate a culture worth the premium, ensure streamlined costs of customer acquisition, and build preference – which we generally distinguish from loyalty.
For start-ups, as well as established business class travel brands, the timing is excellent for renewing connections with the business class travel set – particularly the niche of millennial business class travelers now emerging.
For more forecasts on fuel, fares, and flight, contact us at [email protected]